You don’t have many options when you think that the arbitrator who you agreed to hear your case has delivered a plainly wrong arbitration award. In fact, you probably have none at all.
The Defendants in the NC Business Court’s recent decision in Trilogy Capital Partners,, LLC v. Killian, 2015 NCBC 103 were left stuck with a $4 million plus Award against them, despite their argument that the Arbitrator had exceeded his authority in making that Award.
The North Carolina Revised Uniform Arbitration Act
These parties had been arbitrating pursuant to the North Carolina Revised Uniform Arbitration Act, which provides only narrow grounds for vacating an arbitration Award. The reasons include that the arbitrator ""exceeded the arbitrator’s powers." The entire list is contained in Section 1-569.23 of the General Statutes.
It’s Not Enough That The Arbitrator Just "Got It Wrong"
The Defendants argued that the Arbitrator awarded greater damages than those permitted under the North Carolina Limited Liability Company Act.
Judge McGuire disagreed that this was a basis for vacating the Award and held that:
even if the Arbitrator awarded damages outside of those available under the statute, such an award amounts to no more than an error of law insufficient to vacate the Award.
Arbitrators Do Not Have To Follow The Law
But even if North Carolina law had limited the Arbitrator in the amount he was permitted to award, that made no difference.
Judge McGuire held that arbitrators:
‘are not bound to decide according to law when acting within the scope of their authority, being the chosen judges of the parties and a law unto themselves, but may award according to their notion of justice and without assigning any reason.’
Op. ¶33 (quoting Bryson v. Higdon, 222 N.C. 17, 19-20 (1942)).
This Deference To The Decisions Of Arbitrators Is Not A Recent Development
This hands-off approach to the decisions of arbitrators — even if they don’t follow the law and are completely wrong — is nothing new.
In 1895 (that’s right. 120 years ago!), the NC Supreme Court held that:
[i]f an arbitrator makes a mistake, either as to law or fact, it is the misfortune of the party, and there is no help for it. There is no right of appeal, and the Court has no power to revise the decisions of judges who are of the parties own choosing.
Patton v. Garrett, 116 N.C. 497, 504 (1895)(quoted in Op. ¶34)(emphasis added).
The Federal Arbitration Act
Do you have a greater chance of averting the effect of a wrongly decided arbitration Award under the Federal Arbitration Act?
Probably not. The grounds for vacating an Award per the FAA are contained in 9 U.S.C. §10. They are pretty congruent with the grounds enumerated in the state statute.
Federal courts used to recognize "manifest disregard of the law" as an additional common law basis for vacatur, but that ground for challenging an Award was cast into doubt by the United States Supreme Court in Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576 (2008) in which the Court said that the grounds set forth in the statute are exclusive.
There is an additional basis in the federal statute for "modification or correction of an award." Section 11 of the FAA says that a Court may do so if "there was an evident material miscalculation of figures." 10 U.S.C. §11(a).
The Plaintiff in the case before Judge McGuire might have taken a run at a "material miscalculation of figures" argument if the FAA were applicable. But that argument would likely not have succeeded, given that the argument was more that the award of damages wasn’t warranted under the law as opposed to a "miscalculation."